InvenSense's (INVN) Management Presents at Drexel Hamilton Technology, Media and Telecom Conference (Transcript)

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InvenSense (NYSE:INVN)

Drexel Hamilton Technology, Media and Telecom Conference Call

September 7, 2016 1:50 PM ET

Executives

Mark Dentinger - Vice President and Chief Financial Officer

Analysts

Cody Acree - Drexel Hamilton, LLC

Cody Acree

Okay. I just would like to get started now guys. I’m Cody Acree, Senior Equity Analyst here at Drexel Hamilton. We’ve got Mark Dentinger, CFO of InvenSense, Dave Alm here is with Investor Relations for InvenSense. Thanks everybody for coming and, obviously, Mark, thank you for joining us.

And as a services [indiscernible] we got the procedures for everything that we make from a profit standpoint in order to go back to getting it better in fact in the financial services industry, so I would appreciate it.

We are just going to do a fireside chat on presentation today. So guys feel free to jump in if you have questions as we go along. Mark, if you would maybe just start us off with a bit of an overview. I’m not sure what everybody’s familiarity level is with InvenSense, so probably you tell from there.

Mark Dentinger

Yes, sure. First, thank you for having us and good to be here today. InvenSense has been around for about 13 years, so now we were found in 2003 and for most of the first half of our existence, we were focused on making high performance gyroscope. And the big target for the company in its initial phases was console-based gaming devices, in 2007, our biggest customers was Nintendo.

Fast forward, the Board of Directors saw the opportunity to materialize when smartphones came around. They immediately figured that that market could be much, much bigger and then eventually more recently the Internet of Things had everybody thinking about the roles in which it’s very sensor dominated, particularly sensor signal is dominated.

So the company right now is still probably 75% selling motion sensing devices that go into handsets – mobile handsets and so about 75% of our revenue stream today, the balance of it is in the world in which we describe collectively as this IoT and other bucket, but that’s all sorts of use cases on the consumer side for devices and things like drones, wearables, there’s certain microphone products that we include in there and still some legacy console based gaming.

The rotation that we’re going through right now is one of rotating also with mobile and into or in addition to mobile rotating into these other consumer devices and in a longer run rotating out of consumer and into industrial use cases, which we think for the – in the next two to five years, we’ll become the biggest portion of our business.

And when we think about industrial use cases, you’re talking about commercial use of drones, automotive centers basically automotive parts becoming centers on wheels. And other use case like folding chips anything that correctly operates for the human controller onboard ultimately being either supplemented or fully replaced by sensory technology. And we hope to play prominently in that.

We currently or mostly a motion sensor company, we do have some audio sensors, we’re also in process of introducing a pressure sensor, which label under the category environmental sensors. So you can see that it’s an expansion play in the sensor world, it’s a sensor – it’s the expansion play from sensors into multiple different markets. And then ultimately we have Big Data play where we take advantage of the data being generated off of the sensory information and use that to sell or augment business stuff there. And we currently have an offering called Coursa for the retail world, which basically takes sensory data and people moving through retail operations and provides that back to the retailer to see who is buying, where are they walking in the store and what selling in the store.

Question-and-Answer Session

Q - Cody Acree

Mark, you talked about diversifying smartphones and obviously smartphones today about makes up about how much of your revenue?

Mark Dentinger

Yeah, again, mobile today, which is smartphones plus we also currently – there – tablets is – that’s about 75% of our revenue stream.

Cody Acree

So I have already know the name, I’ve talked about this many times and nothing really in your control that just you’ve experienced quite a bit tighter pressure into the core market, not just in your part, but just the market as a whole is where sensors go, can you just talk about the pricing pressure that you’ve experienced, what that means for your core business and you envision a period of time where that pricing pressure abates and maybe that core then becomes a little less ahead?

Mark Dentinger

Sure, yes, so as of a couple of years ago when I first arrived at the company basically in the smartphone world the unit growth was about 30% year-over-year. And that was offset by about a 20% average decline in selling prices year-over-year. That’s what made up about a 10% growing market. And at that point in time, we were picking up market share, reached in the high end.

So we were growing faster than that, but the dynamics were 30 growth 20 headwind on the pricing side and that basically made up the addressable market for us. That’s changed a little bit. The growth in the high-end smartphones, at least in the last three to four quarters, has abated quite a bit. And in fact in the high end smartphones there were probably no more gyro enabled units today than there were four months ago.

With that the pricing pressure has declined somewhat. So some of that is a function of the fact that we have – our biggest competitor competes largely on price relative to us on functionality. And some of the reason that it’s abated at least with respect to our financial results is that we have not chased in some cases, we have decided not to pursue some business at the price being offered.

So the dynamics are a little bit different today. The big thing that has occurred very, very recently is that with the advent of Pokémon Go, got some air coverage today in the earlier section, with the advent of Pokémon Go, the question is will it be just beyond the high end mobile phones that actually adopt gyroscopes, because right now most of the mid-tiers is not serviced with gyroscopes, it’s mostly accelerometers.

And if gaming works its way to the mid-tier, which we have some indications that it might for next year, gaming works its way to the mid-tier then we could be back on into a very, very high growth environment, but I suspect that would also bring some pricing pressure with it. So that’s the mobile side of the equation.

When you get to the other side of the world, which is the IOT and other, there product – the performance of the product and to some degree the functionality of the sensor itself play a much, much higher role. And we do better in terms of both pricing stickiness in there as well as gross margins from “IoT” and other bucket.

But that is in terms of relative growth as we look out for next year. If that continues to grow, that will have some positive effect on both pricing and margins, but that could be offset by the fact if you got a new 500 million units in terms of mid-tier smartphones come in and play against that. So the answer is complicated, but it gets out there and I acknowledge a pricing pressure is a reality from any really fast growing market particularly on the consumer side.

Unidentified Analyst

Question. You talked about mid-tiers smartphones, you’ve been speaking up like ones that are coming out from Xiaomi and Huawei, I guess it was close to be about $400 since that $800 or $500?

Mark Dentinger

Yes, it’s actually we go first up from $500 and down, something like that and we probably draw the line in terms of mid-tier. Yeah, that’s the easiest differentiation. There’s a few other characteristics, but that’s the easiest way to say.

Cody Acree

And Mark, in that mid-tier, I know that there was a point whereas we went into a $100, $150 smartphone market for some of the lower-end of the emerging market and entry level smartphones that OEMs were actually pulling sensor comms out just to drive as much building material cost down as possible. Are you finding maybe that business that market is being replaced by more of $200 million to $400 million – $400 phone market that’s getting a higher sensor content. So I guess we will be looking China of as a whole, are you seeing sensors content increase or is it stable?

Mark Dentinger

I would say it’s stable right now, but again there’s opposing forces to it, because a lot of the growth even from the Chinese OEMs are coming out of the third world. And for there, the adoptive phone largely is communication device, it’s going to be – the price point is going to be very, very sensitive. As the phone user matures, just to say did on the smartphone side, things like your camera experience, things like your navigational experience and ultimately maybe gaming for the more complex users, all become more feature demanding. So again you have a lot of new users coming in at low price points, but there’s some evidence to state that there would be mid-tier adoption and maybe even high level adoption as they mature its users. So it’s again sort of rebating me…

Cody Acree

No, no.

Mark Dentinger

There’s puts and takes into this thing. I do think that again more recently when Pokémon Go began to get some traction, it was interesting, we got contacted by a lot of mid-tier phone offerings to say what do we have to do to get a gyroscope in here. Typically you’re right. They are very – most of the OEMs don’t make a lot of money selling the hardware itself. So $1 to $1.5 worth of content on the board is an interesting piece of the building material. And at the end of the day, if they can live without it, where they can live with the minimal amount of content that maybe just an accelerometer, if you are likely to go with that until the given market dynamics force the decision in their hands and they operate out of fear, I mean, as do we.

Cody Acree

Well, and so let’s – whether it’s Pokémon or what have you, but augmented reality or virtual reality, I guess when you’re talking to the OEMs and they’re talking about applications that are whether it’s a use case or it’s something that’s on a driver replacement cycle or just something that’s going to continue to drive smartphone upgrades, what is – is it augmented, is it virtual reality that is kind of top of mind, what are the OEMs working on it?

Mark Dentinger

I think those are the two applications today that are probably the newest form of growth therein. I still think that there is some opportunity to grow in terms of optical image stabilization, which is an area that we lead into. And we recently introduced a product that incorporates OIS and EIS functionality into the main SoC [ph] chip, we call it an all in one use case, which can go on – which actually is targeted initially for smartphone induction, but actually just started before the mid-tier, because you can do that in a far more economic way than you can by having a discreet solution for the 6-axis and a separate gyroscope they have to attach to an OIS module.

So that’s still a growth area. I still think navigation is a grow area, but if you are asking what’s the new thing coming in mobile, I would say augmented reality first because again I think something on the device itself is probably the first introduction. And then virtual reality where in some cases you are slightly right into the back of a head mounted display. And there that introduces another element of more complex environment where not only the display need a motion sensor, but you also may need motion sensors for any mechanical controller and you may even need them for risk warn.

So you can envision yourself using a virtual reality device where you want to keep a track of your arm motion or something like that, like we are practicing playing a football game where people are moving and you have to throw a football to a receiver in a virtual reality environment, you need motion sensing to the risk, you need motion sensing to the control and you may even need motion – and you’ll certainly need motion sensing in the head mounted display.

So those environments are content rich. Now they are not quite – we’re anticipating they’re going to be quite as big in terms of the number of platforms, but the substitution effect should work in our favor in the sense that it will demand the highest performing gyroscopes, which is what we do.

Cody Acree

Well, okay, so if we take a step back, whether it’s regardless of the application or the use case, you have had Bosch and STMicro that have some cost, they have vacant capacity, in the past they’ve had more street solutions, you’ve had more to an integrated solutions and you have that advantage that allows you to gain pretty significant market share. They still have some cost, they still have vacant capacity, they have every incentive and STMicro you are used to earning 30% gross margins. So is there an evolution from an application from a technology standpoint that your integrated approach is going to allow you to either stay above the fray of that discreet solution from STMicro off the states maybe a little bit of that, that pricing sensitivity, or is that regardless of whether we’re talking about a mid-tier or virtual reality, augmented reality that an STMicro and a Bosch are always going to be there to put pressure as soon as there is evolving market to address?

Mark Dentinger

Yes, so you – actually the select part you have is probably it’s the most applicable. So we presume that we’re always going to see some competition from somewhere. What has been remarkable is nobody else basically other than those who has come into the motion sensing business and we’re still the only one that basically have employed fabless models. They do have dedicated past in this. I suspect that their cases are slightly different. I won’t get into the major differences. I think you hit on one.

If your gross margin hurdle is lower, you are obviously maybe that’s a push factor essentially in one direction. And there again, if you are short of capacity especially if you’re operating in an area where reducing headcount now that’s where the stuff is either restricted or prohibited, your hurdle rate for manufacturing is relatively low. You’ll buy a lot of work to fill that fab, that will become more – that will become your mantra.

And obviously we don’t have that sensitivity. So we have to be smart about what we chase and what we don’t. And part of the reason that we probably have pricing stability is probably the reason why we’re now – our gross margins have stabilized and started to increase is the fact that we’re being selected as to where we chase, it does come at the cost of volume, but at least in mature markets you have to be aware that that’s what your strength are, that’s where you have to fly.

If you look at where – some of the new growth this year has come from like in drones, for instance, there I think our model is far more equipped to respond to it, because the drone manufacturers have extremely complex use cases. In some cases in the high level drones, at least high level consumer drones, you mean multiple motion devices there for aircraft stability, you may need it to actually stabilize the camera, you may need it to actually – you’ve got to correct for wind, I mean you got a lot of complex factors. There we do reasonably well. Our market share is fairly high and there the pricing is it tends to be considerably more sticky.

How big is that market have to get before we attract the competition into it in a more aggressive way, it’s a little hard to tell, I still think that our performance because we’ve got a team of about 75 software engineers. And we got a legacy of a lot of motion algorithms that we purchased over time. So our integrated solution probably placed our favor pretty considerably there.

So if the markets get more complex and fragmented that probably moves in our direction. If the newest markets come up, says that there’s an entry point that requires some complexity, but over time the markets mature and they can be more selective and good enough, it’s good enough, there they have an angel on it. And finally once their capacity – once they hit the capacity, whatever that point is, obviously, the price goes up considerably for them continuing to compete at new business at relatively lowest price points.

Cody Acree

Right.

Mark Dentinger

So a variety of factor says we think we can mature our way through this, but I’m not going to deny that it is an opinion that I can short them.

Cody Acree

Sure. Do we have any questions from room?

Unidentified Analyst

Do you have an idea of what’s the regional revenue break downs?

Mark Dentinger

Yes, so, I got to qualify that as to how we define region. We define region based upon the headquarters of the company we’re selling to because it is not often clear where the device winds up, what geography it winds up. The main factor out of one location, we send into usually it’s a distributor, maybe even on to a contract manufacturer. It’s not clear when we sell a device to the big North American OEM whether or not that device is headed to China or whether not it’s – so we lose track of it, so when we report our geographic revenues, it’s the headquarters.

And right now we’re about 50% to 55% in the U.S. and the rest of the world we spread it around, we’ve got about 10% -- 10% plus in Korea. China is a relatively big geography and run anywhere from 20% to 30% and the balance is the rest of the world with Japan and Taiwan consistently contributing. And that data is available in our public filings.

Cody Acree

So you mentioned that the heavy concentration in North America obviously you’ve had lot of success with Apple. You recently had Samsung move away from you after having – you had a lot of success probably largely on the products as you mentioned. What did you see as your smartphone market share, where your opportunity and what is an opportunity you think with performance, with next generation Samsung products, or how do you see that trend?

Mark Dentinger

I think there’s an opportunity. I think that the large customers over – I’m going to separate the North American OEM, because their taste is slightly different and they just look at this world a little different. They have an army of software engineers and what not. So they look to device performance probably fair amount everything else, so they’re slightly different and there we may have a competitive advantage.

For the rest of world, a lot of it will stand to timing market, size of the device, so on and so forth. I think if you look at that particularly in South Korea, I think it is naturally in their play book back and forth over time, yes. I don’t think that they like to get locked in with a single supplier. We work for a period of time there maybe we had all of their high end business there for a period of time. And I just think it is part of the play book that I have no reason to believe that the Chinese OEMs are at the same race, it’s part of the play book that over a period of time they will like to play this back and forth, a really entry point and if somebody else gets the more matured option possibly that could be the case.

Again, volume is a factor in that, because our competitors are a little bit bigger than we are, so they tend to look at the economics in a bigger scale. But our approach is going to be as much as possible performance differentiation and highly complex use cases. And we’re looking to 2020 or it’s 2025 and this Internet of Things world where sensor performance is going to be fair amount than everything else particularly as we immigrate from consumer into industrial businesses.

Cody Acree

One of the things that allows you to – you’ve really been the fastest share gainer, really for the last many, many years, maybe some of that has been good, some of it is been bad as you had the big battle ground…

Mark Dentinger

Yeah, when you own it all, you’ve got one direction to go.

Cody Acree

Exactly. But as that happened a lot of this has been because of your integration differentiation, your performance differentiation and like you said prices become more of an issue recently, but can you talk about the gap maybe between what you’re seeing as far as integration that your capability versus your competition and where that’s been valued if not in smartphones today outside with other applications?

Mark Dentinger

Yeah, you can see in some of our performance, same for the situation in Korea. They were our biggest OIS customer. But OIS was something where and market where we really built it and defined it and that was an expensive solution to a problem that we started to solve that acquired a lot of motion sensitivity. When we were there, we still actually generate reasonably good gross margins. And so if we think about differentiation very, very highly complex use cases, we do reasonably well, our pricing is relatively sticky and over time we can get to a relatively good gross margin profile.

But I don’t deny where you’re going with the question again when things stabilize and good enough, it’s good enough that’s where we get the competition. I do think in terms of use cases, the camera experience it’s a very, very important to the user, the navigational experience is very, very important to users and could become more importance particularly virtual [indiscernible] navigation that basically complements a GPS based navigation.

And we think advanced gaming experience is probably the next horizon, which introduces augmented reality and virtual reality. On all of those fronts, there is a reason to believe that we will have more differentiation and therefore more price stickiness, probably also if you look at drones, high end consumer wearables and if you start to switch your eyes and move off into the distance, automotive and other industrial use cases, their differentiation is going to be – it’s going to play a big role and we think we will be in good shape.

Cody Acree

Maybe just for those who are not as familiar, can you talk about the delta, the difference between EIS and OIS, like you said, OIS was something that you really lead the market in, there was a separate gyro, EIS was something that Apple kind of maybe lead architecturally, can you just maybe explain the difference?

Mark Dentinger

Yeah, so OIS is stabilizing a single photograph, a single image, EIS is stabilizing video, so it’s multiple images. And where we initially entered the market was introducing the gyroscope that fed into a controller that fed into an actuator that actually moved the camera back and forth. So if you hold up a phone take a picture of something, your hand jitter, the device would recognize your hand jitter, would recognize it as hand jitter, would actually correcting and rebalance the actuator so that the photograph came up more stable than it actually was taken.

All of that was done through physical movements, measuring the physical movements. Now with the most recent products both in the EIS and the OIS front, now all of that is being done with software. So with basically the device still captures through the 6-axis – still captures the motion that’s going on but the corrections are happening with the software. So for instance, in the EIS, it’s a frame to frame compare that actually tends to blend them together over time to give you the smooth view. So that’s the evolution of what’s taken place and again all presumes that the camera experience is going to be significant going forward.

Cody Acree

But you’re relying more on that combo solution, typically a gyro, accelerometer combo, is that correct?

Mark Dentinger

You are. And again that’s one of those applications where you almost need the gyroscope. There’s a lot of accelerometers out there. There’s a lot of individual accelerometers, they measure linear motion and in relatively simply use cases for measuring motion, an accelerometer will work. It is when you start to rotate and get into complex rhythm that you need a gyroscope to pick up all of those motion activities and then you need some complex interpretive software basically interpret what must you’d be doing in order for that to be the case and basically say, you must be rotating your head in this direction, you must be doing this, as you sort through the raw data and it’s in that area that we believe that this is where the motion sensor is heading.

Cody Acree

I guess where I’m with this is that by image stabilization architecturally throughout the industry moving more towards software image stabilization, relying on combo solution, but that really plays here in creation capabilities more so maybe at the street level gyro around your competitors…?

Mark Dentinger

Yeah, because it requires software content and because it usually requires an algorithmic library all which we worked on either acquired or built on our own and yes that’s probably the – as opposed to just capturing the raw motion there.

Cody Acree

You mentioned the drone market, I don’t know what to think about drone market, I mean I don’t know how real it is. We’ve all seen consumer products and whether you call it a consumer item or not, but we’ve seen these kinds of applications come and go kind of quickly. And I think we’re still trying to find a use case, become a business use, consumer uses it. I guess what’s your opinion on drones as a real end market for you, short-term, long-term, and then where is the risk – potential risk for corrections and [indiscernible]?

Mark Dentinger

Yes, absolutely. First of all, drones do a lot of things. They are everything from a toy helicopter flying around the room that you end up for – it’s a party favor, Christmas, everything on…

Cody Acree

[indiscernible]

Mark Dentinger

Yeah, right. Predator drones and what not, that can fly with aircrafts. So there is a big spectrum in way there. There’s probably – That are probably because of the navigational restrictions that have come into play more recently that probably limits to how often and what you’ll be able to do if you just want to go down to park and fly a drone like we used to fly, a remote controlled aircraft. But in terms of use cases, the drone is still a very efficient way to get an overview of the visual area whether or not it’s in agriculture, because it’s being used now instead of pilot for an aircraft, agriculture, everything from evaluating what’s going on in a disaster area where you can’t get access to it and what not. The big thing that the drone will ultimately do is remove the pilot.

Cody Acree

Yeah.

Mark Dentinger

The pilot is expense, the pilot is heavy, they’re expensive and what not. If the drone can eliminate that and can deliver things or transport things or go access things that you cannot get to without a pilot basically navigating to or frankly just because of access points of piloted aircraft is not equipped to get to. There’s a lot of things that potentially drones could do. If you’re asking me for a forecast about where all this go and I want to go there, I just don’t know, I know that they are talking about using drones to access caves, to try and get about all sorts of areas, that does introduce pretty complex motion use cases.

So we’ll see where it goes. I do believe people are going to continue to working on it and it doesn’t take very long to stuck in traffic before you can see it, but then you could get anything over the top of that, that would be helpful. So I think that’s a long way of saying, I think there are use cases out there, I don’t think we probably flush them all out, it’s probably determined.

Cody Acree

Well, I guess, if you look at the 25% of your business that’s non-mobile related 25%, 30% of the business. Can you just ratify that and talk about your level of engagements, whether it’s IoT, whether it’s drone, whether it’s automotive. And maybe not what’s contributing necessarily your strategy earlier today, but where you expect that ratification revenue to be in two to three years based on your engagement study?

Mark Dentinger

Sure. Yes, I maybe start with what it is today. So the IoT and other buckets what you’re referring to, and that’s basically all non-mobile motion. And today, about half of that bucket, which is about 25% of our business, about half of that bucket is coming from drones.

And then drones are an interesting used case, because every drone requires a 6-axis and like you have a gyroscope on board. And at the higher-end consumer usage, you need multiple 6-axis that might contractually try to measure multiple conference for us at the same time. So it’s a real target rich platform for motion sensing.

Despite half of the business today, it also included in that business. We have some high-end microphones that are mostly introduced for industrial cases like high-end conferencing phones, headphones, or often involved in noise – complex noise cancellation algorithms.

We have our legacy console-based gaming business, which is continuing to struggle on and there are some new products coming out on that front. And we also have things like wrist-worn wearable in the fitness and activity recognition category. And, again, on the low-end a simple accelerometer counter steps. If you want to actually go up and take a run, where you’re not 100% connected to GPS, the entire time you need to do recycling of capability with a complex motion sensing measurement device to take that up.

So that’s to-date. It’s about where we’re to-date. I think going forward, the next new platform is likely to be some sort of head mounted display, slightly the growth area for next year, but not fast-forwarding to the future. We’ve already announced initiatives into automotive. And what we’re targeting in automotive is an entry point into some of the safety applications that are currently handled by other suppliers, but not necessarily with MEMS and semiconductor-based technology right now.

What’s happening is, the consumer grade motion sensors are getting good enough, and that’s why we’re looking into this. We’re working with a Tier 1 supplier into the automotive world. We haven’t released the name yet, but you would recognize the name. And our objective is to use them to get into the introduced supply chain, but it does take two or three years, the safety requirements are very, very high, particularly the manufacturing requirements in terms of [indiscernible] coming off of the line. For obvious reasons, rollover detaching and other safety sensory systems and probably we can’t afford to run on that stuff.

So automotive, I think, there are some industrial used cases for high-end robotics tool, we’ll require against motion sensing. And then we’re also working with some new sensors, including the fingerprint sensors called UltraPrint, based upon ultrasonic technology that we think will probably over time display capacity technology, at least, in terms of identifying yourself in fingerprint.

All of this becomes important, because and progressively more sensitive online applications. They’re being initiated from a phone for something with a glass surface. The accuracy of the fingerprint becomes progressively more important. If you’re transferring a lot of money so and so forth, reading the image cleanly and minimizing false positives and false negatives, so it’s going to become very, very important.

So there are a couple of companies working on this. What we believe we have as unique here is that, we’ve got a manufacturing platform that this should work very, very nicely to if we can get pass the initial stages of operating new module.

So that’s a little idea about what we’re working on for the future, in terms of trying to sit and help how big all of these things are going to be in three to five years, certainly, the automotive market is big, both today and what we think will be big in the future. Again, fingerprint technology is big today and could be bigger in the future. And then ultimately, data analytics, which we’ve taken our first step into with project Coursa could be very, very important, because it’s going to be trapping that sensory data.

So, if a drone, whether or not it’s manned or not – whether a manned aircraft or a non-manned aircraft flies from point A to point B, you will have all of the flight experience memorialized on that and probably downloadable into a database, and you have to say, what are the consistent patents and what not. Not for next year, but for not too distant future.

Cody Acree

What are we thinking about as far as when you look at the dollar content in the smartphone, you look at maybe AR/VR applications or current applications all the way up in the automotive applications or IoT, is there much of a delta, especially as you look into something it’s largest maybe automotive passwords?

Mark Dentinger

Yes, the content goes way up for platform, but the number of platform is probably was down yes. But say, the automotive right now is the worldwide market is about 80 million cars travel per year, I would just tell, 8 million in the U.S. That’s a fraction of the billion plus mobile phones we could send out.

But the content per platform would go up considerably, same thing is through at drones. And I presume the same thing would be true of other industrial used cases, whether or not it’s a medical – certain medical applications that will require monitoring efficient movements that are happening and you’re buying so and so forth. I mean, again, fewer platforms, but more content with platform, because again, what you’re trying to measure is aggressively more complex.

And it may require multiple sensor types too. There maybe pressure sensor, you might have a microphone who are audio sensing capabilities in there. So it’s pretty exciting to think about what comes first, that’s not clear, gave you some idea what we think the next advances are. And I don’t want to minimize, by the way, what’s going on in the handset world, because even today for most of these stuff, our initial product launches are occurring in handsets. That’s what we did the validation. That’s what we can improve whether or not you can ramp up manufacturing, that’s where you get pressure tested initially. And so, that’s still going to be a big piece of the equation for, at least, a couple of more years.

Cody Acree

Your typical mobile content?

Mark Dentinger

Typical mobile content is on the dollar. If you’re talking about one device, it could change a little bit as we introduce more sensory functionality in there. But it’s still $70.

Cody Acree

First off, we’ve got about five more minutes. So anybody else have any questions here please? I guess, while taking all this into account mobile pricing pressure in unit volumes all the ebbs and flows and all that you’re doing outside the mobile, you have really good growth up until about 2015 annual growth, 2016 has been a step back. Can you grow in 2017? I know, yes, but how you are growing returning growth especially 2017?

Mark Dentinger

Yes, I think we can. And we’re – even, we can even presuming that mobile doesn’t grow that much, just because I think head mounted displays, drones and other used cases come up. We will do fine, also think that that again more recently, if the Pokémon Go phenomena means that mid-tier phones have to adapt and we get some of that that will be growth for us as well.

So, I’d say right now, but at the end, but I see what our fiscal 2018 versus mostly calendar 2017 looks like a growth year at this point.

Cody Acree

Just from a CFO standpoint then if you’re returning to revenues top line growth, you’ve been pretty disciplined and hence you walked away consumer business that would have been intently diluted to your gross margins. Can you talk about your margin leverage, your margin drivers, and then what you’re doing financially to make sure you’ve got operating disciplines, which gives some drop through that revenue curve?

Mark Dentinger

Yes. So right now, we’re probably fully invested on the R&D side. The popular question is that, would you buy more stuff?

Cody Acree

Yes.

Mark Dentinger

And the answer is, I don’t think, we’re going to buy a lot of big stuff, but I do think small stuff may come along tuck-in acquisitions they can make some sense to us. But we’re doing a lot of stuff right now. We’re probably near capacity at our current size and that has a basically probably penciling this year out, maybe a 100 and mid-130s in terms of the operating expenses last year we ended at about 130 non-GAAP basis.

So we’re pretty close to capacity right now, and we’re just talking about adding fringes. That would suggest that we can hold that and get top line growth and hold the gross margins, the model is very leveragable.

Cody Acree

Yes.

Mark Dentinger

Because you get 45% to 50% that drop right to the bottom line. Not an easy task necessarily, but not part to engage in either, if you can figure that, we can just stabilize on the mobile front and we get a little bit of growth back into the mobile area. And then you add on top of that continued growth in the IoT and other world. And then if you could get a mid-tier mobile at the same time, that should give us plenty of opportunity for growth next year.

Cody Acree

And M&A obviously is a big payment savings and make throughout check, but particularly with you wanting to have diversity away from mobile to certain degree, where did you spend your money?

Mark Dentinger

Yes, again, it would be more sensors or more markets at this point. I think it’s one of those two things. In buy markets that could be a channel play. It could be buying some unique software capabilities to access a market that’s been growing rapidly. And this company is by far the most active that I worked at, at least, into three companies I’ve been a CFO, in terms of the number of people approaching us and say, hey could you do this for us.

And part of the problem for us – for me is to see and always to say, hey, we have to take our Atlas. We can add everything at the buffet, and then, and it’s – so that discipline is difficult, because obviously, the engineering orientation of the company is to pursue very, very impressively as new markets appear. So you’re talking with a guy who watches the spending side of it pretty carefully. But if my boss were here, he would tell you, well, Mark got to appoint everything, but don’t – again, this market materializes and we think there’s enough opportunity and we’re not going to miss out on this. So…

Cody Acree

Gotcha. Lastly, we’ve got a couple of minutes. The other side of the M&A, there has been so much consolidation. Why do you think that InvenSense is still independent today and while a human part of the consolidations, that’s a little bit like say, I haven’t take the pump [Multiple Speakers]

Mark Dentinger

I did, and don’t worry, because there’s a lot of activity going underway. I can’t really answer it, I mean, a lot of that is a function of who might be interested in InvenSense for whatever reason. And they have to speak for themselves,and it often says, so that I’m going to give a longwinded answer to avoid your question. But basically, when I look at a – as a – if a credible offer comes in net values to company, I think in a constructed way our board will...

Cody Acree

We’re running out of time, but anybody have any any last questions? All right. Thank you very much.

Mark Dentinger

Okay. Thank you.

Cody Acree

Thank you.

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